Auction of linkages of Non-Regulated Sector

No: --- Dated: Feb, 03 2016

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has given its approval that all allocations of linkages/Letter of Assurance (LoAs) for non-regulated sector viz. Cement, Steel/Sponge Iron, Aluminium, and Others [excluding Fertilizer (urea) sector], including their CPPs, shall henceforth be auction based.   The tenure of Fuel Supply Agreement (FSA) will be as decided by Ministry of Coal from to time.

The framework attempts to make the coal available in a fair manner to the end-users. The proposed auction methodology leads to the price through a market mechanism; it does not seek to maximize revenue.

It ensures that all market participants of non-regulated sector have a fair chance to secure coal linkage, irrespective of their size.

The details are as follows:

                          i.            There may not be premature termination of FSAs of non-regulated sector as of now. There will be no renewal of existing FSAs of non-regulated sectors [except FSAs of CPSEs and Fertiliser (Urea)] which are maturing in 2015-16 onwards, after completion of their current agreement tenure.

                        ii.            The existing FSAs with Central Public Sector Enterprises (CPSEs) may continue to be renewed on expiry; for additional linkages, CPSEs may participate in auction.

                      iii.            To start with, in the first tranche, the quantities corresponding to FSAs of non-regulated sector [except CPSEs and Fertilizer (Urea)] maturing in 2015-16 onwards and 25% of incremental Coal India Limited (CIL) / Singareni Collieries Company Limited (SCCL) production during 2015-16 over 2014-15 will be put up for auction.

                      iv.            For auction of linkages, separate quantities shall be earmarked for sub-sectors of Non-Regulated sector. The sub-sectors could be Cement, Sponge Iron/Steel, Aluminium, and Others [excluding Fertilizer (urea) sector], including their Captive Power Plants (CPPs) etc. Auctions shall be conducted by CIL/SCCL.

Policy directions will be issued by the Ministry of Coal and will be implemented by CIL/SCCL

The auction of coal linkages is transparent, and creates a level playing field. It ensures that all market participants have a fair chance to secure the coal linkage, irrespective of their size. It attempts to ensure an optimal allocation of coal across user industries and geographies.

Background:

Hon'ble Supreme Court of India vide its judgements in August and September, 2014, had declared 204 coal mines/blocks allocated since 1993 as illegal on the grounds that the procedure followed was arbitrary, Pursuant to this judgment, e-auction of Schedule II and Schedule III Coal Mines was conducted. The same philosophy of non-discretionary allocation could be extended for the coal linkages as well. This would require CIL to allocate linkages through a market-based mechanism.

An Inter-Ministerial Committee (IMC) was constituted in the Ministry of Coal in January, 2015 to consider and examine various structures and implementation models for implementing the competitive bidding for .auction of coal linkages/LoAs and to  recommend the optimal structure that would meet the requirement of all the stakeholders. The IMC met 7 times since its constitution. It was decided in the 5th meeting of IMC that auction of linkages for non-regulated sector should be taken up first. An Approach Paper regarding proposed methodology was discussed in the 5m meeting of the IMC and was uploaded on the website of Ministry of Coal (MoC) for inviting comments of the general public and stakeholders.

The responses received from various. stakeholders and individuals, besides comments from Ministry of Railways, Ministry of Steel and Department of Fertilizers were placed before IMC for consideration. Further, stakeholder industry associations presented their views and comments before the 6tn meeting of IMC on 21s August, 2015. The issue was also deliberated by the Committee of Secretaries (CoS) in its meeting held on 09.10.2015.

Coal linkages to various sectors are governed by New Coal Distribution Policy (NCDP) issued by the Ministry of Coal on 18.10.2007. Under the NCDP, a new system of issuance of LoA)was introduced for Power, Cement and Sponge Iron sectors. Under this system, requests for Linkage/LoA are forwarded to the Administrative Ministries for their recommendation. Recommendations are placed before Standing Linkage Committee (SLC/LT) which authorizes issue of LoA, However, no new linkages or LoAs have been allocated to non-regulated sector since 2007.